Reassessment based on liaison office activity failed where no taxable income in India was shown and reopening objections were left undecided.

Reassessment proceedings were treated as unsustainable because the objections to reopening were not disposed of before completion of assessment, and the record did not show any taxable income accruing or arising in India from the assessee's liaison activities. The liaison office operated within RBI permission, which allowed only liaison work for recruiting Indian crew and barred any income-earning consultancy or commercial activity. The assessment also relied on receipts of another company rather than identifying income actually earned by the assessee. On these facts, the reopening under sections 147 and 148 was held invalid and the addition could not be sustained.

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Issues: Whether reassessment proceedings under sections 147 and 148 of the Income-tax Act, 1961 were valid, and whether the addition based on alleged business connection or income accrual from the liaison office could be sustained.

Analysis: The notice for reassessment was issued after a survey, but the objections raised to reopening were not disposed of before the assessment was completed. The liaison office was found to be operating within the confines of the RBI permission, which permitted only liaison work for recruiting Indian crew and prohibited any income-earning consultancy or commercial activity. The assessment order did not identify any income actually earned by the assessee in India; instead, it adopted the receipts of another company as a basis for estimation. On these facts, no taxable income accruing or arising in India was shown, and the reopening was held to be unsustainable.

Conclusion: The reassessment under sections 147 and 148 was invalid and the issue was decided in favour of the assessee against the Revenue.

Ratio Decidendi: Where objections to reopening are not disposed of and the record does not establish any taxable income accruing or arising in India from the assessee's permitted liaison activities, reassessment under sections 147 and 148 cannot be sustained.

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